Costs fall for UK manufacturers

UK manufacturers reported an unexpected drop in costs in July, according to the Office for National Statistics.

The input figure fell 0.6% from June, marking the largest monthly decline since January 2007. But input costs rose 30.1% compared with July 2007.

Overall producer prices, which reflect how much goods leaving the factory gate cost, rose by 10.2% year-on-year or 0.4% on a monthly basis.

The falling price of oil is a key factor behind the drop-off in costs.

The price of US crude oil is hovering around $116 a barrel after reaching record highs of $147.27 in July.

Core output prices, which exclude volatile items such as food, alcohol, tobacco and petrol, rose 6.6% compared with a year earlier.

'Modestly relieved'

"This is the first fall in input prices inflation for some time, which is quite encouraging, but the output side is less encouraging as it shows inflation has yet to peak," said Brian Hilliard, of Societe Generale.

Alan Clarke of BNP Paribas warned that output price inflation was still rising, even as energy prices fell.

The figures came after the UK's largest employers' organisation, the CBI, warned that the UK economy was deteriorating faster than it previously thought.

Quickening inflation and slowing growth have triggered fears of a possible recession.

"The Bank of England will probably be modestly relieved overall with the July producer price inflation data," said Howard Archer, chief economist at Global Insight.

"But it is very far from out of the inflation woods yet."

Meanwhile, provisional data on Monday showed the UK's trade deficit with the rest of the world widened in June to £4.4bn from a deficit of £4.1bn in May.

Exports rose 4.2% while imports increased 4.1% month-on-month.

"The deterioration in the UK's trade position comes despite export prices outpacing import prices," said Hetal Mehta, senior economic advisor to the Ernst & Young Item Club.

Source: BBC News